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Foreign direct investment and employment in the industrial countries

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  • Palle S. Andersen
  • P. Hainaut

Abstract

Since the trough in 1982, the growth of real foreign direct investment (FDI) outflows and inflows for the OECD countries has been very high, far outpacing that of foreign trade and real GDP. While such flows are likely to have increased the efficiency with which global capital is being used, they have also led to concerns that outflows from the industrial countries serve as an instrument for exporting jobs to low-wage countries. The purpose of this paper is to look for evidence regarding the precise relationship between FDI outflows and employment in the source countries. The empirical evidence mostly relies on estimated relationships between FDI flows and various components of demand but is derived from time-series analyses for individual countries as well as from panel regressions. All in all, we find only limited evidence that FDI outflows lead to job losses in the source countries. While it is true that domestic investment tends to decline in response to FDI outflows, emerging market economies receive only a small, albeit growing, share of global outflows. It also appears that high labour costs encourage outflows and that exchange rate movements may exacerbate such effects. However, the principal determinants of FDI flows are prior trade patterns, IT-related investments and the scope for cross-border mergers and acquisitions. Moreover, there is clear evidence that, by improving distribution and sales channels, FDI outflows complement rather than substitute for exports and thus help protect rather than destroy jobs in the source countries.

Suggested Citation

  • Palle S. Andersen & P. Hainaut, 1998. "Foreign direct investment and employment in the industrial countries," BIS Working Papers 61, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:61
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    References listed on IDEAS

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    Cited by:

    1. Claudiu Albulescu & Adrian Ionescu, 2017. "The long-run impact of monetary policy uncertainty and banking stability on inward FDI in EU countries," Working Papers hal-01503950, HAL.
    2. Maria Birsan & Anuţa Buiga, 2009. "FDI Determinants: Case of Romania," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 15(4), pages 726-736, February.
    3. Jaya Prakash Pradhan, "undated". "Growth of Indian Multinationals in the World Economy: Implications for Development," Working Papers 0704, Institute for Studies in Industrial Development (ISID).
    4. Soo Khoon Goh & Koi Nyen Wong, 2014. "Could Inward FDI Offset the Substitution Effect of Outward FDI on Domestic Investment? Evidence from Malaysia," Prague Economic Papers, University of Economics, Prague, vol. 2014(4), pages 413-425.
    5. Fred Henneberger & Alexandre Ziegler, 2003. "Aussenhandel und Auslandsproduktion im Dienstleistungssektor: Theorie und Empirie der Beschäftigungseffekte für die schweizerische Tourismusbranche," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 139(IV), pages 535-561, December.
    6. Christian Bellak & Wilfried Altzinger, 1999. "Direct Versus Indirect FDI: Impact On Domestic Exports And Employment," Working Papers geewp09, Vienna University of Economics and Business Research Group: Growth and Employment in Europe: Sustainability and Competitiveness.
    7. Henneberger, Fred & Ziegler, Alexandre, 2001. "Internationalisierung der Dienstleistungserstellung : Konsequenzen für den schweizerischen Arbeitsmarkt," HWWA Discussion Papers 149, Hamburg Institute of International Economics (HWWA).
    8. Everett, Mary, 2006. "Foreign Direct Investment - An Analysis of its Significance," Quarterly Bulletin Articles, Central Bank of Ireland, pages 93-112, October.
    9. Lionel Fontagné & Michaël Pajot, 1999. "Investissement direct à l'étranger et échanges extérieurs : un impact plus fort aux États-Unis qu'en France," Économie et Statistique, Programme National Persée, vol. 326(1), pages 71-95.

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